Simply Tax podcast Episode 94: Tax Considerations of COVID-19 Relief
In this episode of The Simply Tax Podcast hosted by Damien Martin, he has on Ed Karl, Yelena Bosovik and Julia Dengel. They talk some of the tax considerations with COVID-19 relief and take some questions from listeners. Here I summarize some of the key takeaways.
Recovery rebate checks
- Every adult tax payer gets $1,200. If you get claimed as a dependent on your parents return, you will not get a rebate check.
- The check is an advanced credit and will increase your taxable income in 2020.
- $1,200 for individuals and $2,400 for filing jointly
- $500 for each qualifying dependent child
- Child = minor child under 17
- Checks go out electronically if the IRS has your electronic banking info, otherwise paper checks will be sent out
- Recovery rebate checks are based on info reported on your 2019 tax return. If there is no 2019 return, the amount will be based on your 2018 income. If you didn’t file a tax return in either year they will base it 2019 social security income
- This is a credit against your 2020 fed income taxes so you’ll have to take this into consideration when paying taxes for 2020
- Not everyone gets a check. You need to supply a Social Security Number for all people you want to receive a check
- Phase out = $150,000 for joint. $112,500 for head of house hold and $75,000 for all others
- You’ll loose about $5 for every $100 of your AGI that exceeds that threshold
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- For individuals, they can get money out of retirement funds. The CARES act waves the 10% penalty for early distributions from qualified retirement plans for up to $100,000 of Coronavirus distributions in 2020
- Taxpayers may repay these amounts within 3 days of withdrawal
- The individual is subject to taxation on the amount they take out but may span this over the course of 3 years if you would like to do that
- This relief is available for an individual who has been diagnosed with COVID-19 or whose spouse is diagnosed with COVID-19 who has experienced financial consequences as a result of being quarantined, furloughed, laid off, having work hours reduced, being unable to work due to caring for a child due to COVID-19, closing or reducing hours of a business owned or operated by the individual due to COVID-19, or other reasons as determined by the treasuries secretary.
- Also provides a temporary waiver of the required minimum distribution rules for certain funds and accounts
- Taxpayers who do not otherwise elect to itemize deductions are allowed an above the line deduction in 2020 of up to $300 in contributions made in cash (not stock) to any 501-C-3 public charity and this excludes donor advice funds
- For taxpayers who do itemize, the CARES act temporarily increases limitations on deductions of charitable contributions made in 2020 and they suspend the 60% of AGI limitation who make cash contributions
- For food donations, the limitation increases from 15% to 25%.
- Employers are allowed to provide student loan repayment or tuition assistance at $5,250 annually per employee and this provision is in effect until January 1, 2021
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- Under the CARES act, they temporarily increase the 10% limitation for charitable contribution deductions imposed on corporations to 25%
- Correction to the 2017 TCJA to allow companies to apply the accelerated bonus depreciation rules to their qualified improvement property. And this will be retroactively applied as if it were included with the original TCJA.
- Old net operating loss (NOL) rule: NOLs can not be carried back but can get carried forward indefinitely. New NOL rules (CARES version) put in place by the TCJA are going to be temporarily revised to allow losses occurring in 2018 through 2020 to be carried back for 5 years. 2303, (b), 1, D, v, II of the CARES act. 1139 for corps, 1045 for individuals, or form 1120x or 1040x and file by the due date including extensions dating back to 2009. 6511-A and 6511-2A provided guidance on NOL carry back.
- ‘‘(v) SPECIAL RULES FOR ELECTIONS UNDER PARAGRAPH (3).— ‘‘(II) TIME OF ELECTIONS.—An election under paragraph (3) (including an election described in subclause (I)) with respect to a net operating loss arising in a taxable year beginning in 2018 or 2019 shall be made by the due date (including extensions of time) for filing the taxpayer’s return for the first taxable year ending after the date of the enactment of this subparagraph.’’.
- https://www.congress.gov/116/bills/hr748/BILLS-116hr748enr.pdf (page 74)
- The 80% limitation is suspended for taxable years starting before January 1st, 2021
- Temporarily modifies the 30% limitation on business interest expense deduction that was originally provided in TCJA and increased to 50% for tax years beginning in 2019 or 2020. This allows businesses to have a reduced cost of capital when starting businesses. This allows more flexibility to partners who are in a partnerships.
- Provision for excise tax on distilled spirits used in hand sanitizer (within FDA guidance). This excise tax is now waived
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- 500 employee threshold
- There is a different provision for the paid sick leave provision and the FMLA provision. There are two sets of rules where one will apply on a consolidated basis and the other will apply on an entity by entity basis
- If you are anywhere close to that threshold, consult an attorney to see if you are subject to this or not. If the labor law attorney says you aren’t eligible, then don’t worry about this tax credit
- If you are eligible, then talk to your accountant who can calculate how much of a credit based on how many employees to cover the cost
- Family first act only provided benefits if all 6 conditions are met
- CARES act then came in to provide additional relief to companies whose employees are doing well but the business is not doing well which then leads the employees to not be working as much
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- It isn’t addressed in the guidance
- With the FAQ it does not cover Q2 guidance for payments due June 15, 2020. It’s a risk to take the approach to go ahead and make estimated payments
- As a result of the Coronavirus, businesses and individuals may not even need to make estimated payments, because if there is no income, there is no tax on a annualized basis
- Not all states are covered under the federal guidance
- Some states you need to look at Q1 payments and Damien says he wouldn’t give guidance on estimated payments since there isn’t enough information released yet
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- Guidelines for employers asking employees who want to take this leave
- You need the employees name, time off, reason asking for the leave, and a statement saying the employee is unable to work
- If your child is self quarantined, you need to include your child’s name
- If you don’t have child care or your child’s school closes down, that qualifies you up to 2 weeks of paid leave and 10 weeks of FMLA leave
- For this, have a statement with the child’s name(s) and age, the school/daycare that is no longer in service, and an email/proof that the school/daycare is no longer open
- Employers can defer the employers portion of SS tax. They defer half of it which will be due Dec 31, 2021 and the other half due Dec 31, 2022. This allows businesses better cash flow. You should still file your regular payroll filings like normal and we are waiting for more guidance from the IRS. Right now it is just a temp provision for increase in cash flow.
- Small business exception to the paid leave provisions under the family first act. Provides up to 12 weeks of paid leave for people who are unable to work (mainly being sick, taking care of those who are sick, or child care reasons). From the dept. of labor and the IRS, this is something you need to document and apply for and explain why this is a hardship for you (hardship exemption). If you have under 500 employees you can still provide it if it’s not a hardship to provide this. Here you can get advances on the credit